Throughout history, we have experienced a variety of economic conditions and circumstances, including recession, inflation, and somewhere in between. For a few years we have experienced very low inflation, largely caused by a variety of conditions, around the world, and largely interrupted by the ramifications and shocks, created and caused by this horrible pandemic! Currently, it appears that we are experiencing a great deal of inflation, created by many factors, including but not limited to the following: post-pandemic ramifications; Supply and demand issues, largely caused by supply chain issues; unrealistically maintaining a prolonged low period of near-record interest rates, etc. With that in mind, this article will briefly try to examine, consider, review and discuss 6 potential dangers of prolonged periods of inflation, and why it is important to know and understand the options and alternatives, in order to try to choose the best way forward! !
1. Cost of living: Some factors that determine the cost of living include: wages (and wage growth); prices etc, and how wages are, or are not, able to keep up with rising costs etc! Most realize that, in the last few months, we have experienced a huge jump in prices, most apparent, in grocery stores, restaurants, and just about everything related to everyday life. existence etc.
two. Federal Reserve: In recent times, the almost – historical – low, prolonged period of interest rates, in addition to the planned measures (helping companies and the economy, in difficult times), has caused a Real Estate Market, Sellers, and, a huge increase in home prices in most of this country! In addition, it created an increase in the use of credit by consumers, because the loans seemed cheaper. However, most economists forecast that many of these supports and the maintenance of such low rates will gradually be reduced (or minimized), probably starting next year. What impact will that have, and we’ll see the historical reaction, which has been, when they raise rates, does it help reduce inflation, etc.?
3. National economy/conditions: Largely due to a global supply chain, set of obstacles/challenges, many industries have experienced challenges, in terms of sourcing sufficient quantities of needed materials, etc. Go to almost any store, and you’ll see more sparse shelves than we’ve seen in recent memory! Also, building materials, products, food, toys, cars and auto parts, etc. are under stress due to this.
Four. World economies/ economic conditions: Almost all nations are experiencing economic problems and challenges! The UK, due to specific national and global trends/causes/conditions, has been greatly affected! Since we largely live in a global economy, when there is a supply chain disruption, it affects everyone!
5. Stock and bond markets: Due to various reasons/factors, the US Stock Market has benefited significantly and experienced significant share price increases. Besides the obvious ones, because interest rates have been so low, many investors believed that stocks were pretty much the only game in town! When, yes, interest rates rise, bond rates will rise and existing bond prices will adjust and fall!
6. Immediate, intermediate and longer-term ramifications/impacts: The immediate impact of inflation is usually the increase in prices and wages, which generally increase at a much lower rate. In the intervening period, we start to see weakening economic trends, and in the long run, depending on how long, there are often various ramifications and undesirable impacts!
Don’t take inflation and its risks for granted! The more you know and understand, the better prepared you will be!